“Hey, there’s another one,” I said to Dorothy as we tromped through the crispy leaves. In that one block the score was B&Bs, 6. Residents, 1.
This hunk of the Old Town may not reflect NOTL as a whole, but it sure underscores what we’ve done with the housing stock. Here, where three million people come to soak in the atmosphere, ride with horses, slurp gelato, hit the theatre and drink too much, investors have learned commercializing homes is big biz.
If you want to have a B&B, this town is your pal. Other places ban the practice of renting out a room or a suite short-term unless you live in the place. Not here. We allow whole houses and cottages, villa and inns to thrive as tourist rentals. But you must register and file a wad of paper, including floor plans, electrical report, insurance proof and a “good neighbour” agreement promising your guests won’t pee on Betty’s begonias next door.
Currently there are about 415 short-term rentals on file, in total, with the local authorities.
But wait.
On Airbnb alone exist 950 NOTL listings. That’s interesting. Hundreds of places seem off-book. Owners would rather make big bucks from visitors than deal with pesky long-term tenants. No wonder renters are scrambling.
Some think Airbnb and other online platforms have helped financialize residential real estate, drive up prices, suck off inventory from first-time buyers and remove those needed for-lease spaces. In fact a little building currently for sale on Queen Street ($3.3 million) is in the process of converting two apartments from tenants to transients.
“This adds considerable value,” the listing agent says.
Well, into this B&B reality pokes the big, voracious proboscis of the CRA.
It’s common knowledge B&B revenues must be declared and taxed as income (less allowable expenses). Operating in cash is illegal. The penalties for cheating and being caught include a big fine, interest and a quart of fire ants dumped in your shorts. (Trust me, I know. I was once in charge of the CRA).
Apparently, lots of people are still evading tax.
Here’s the latest punishment from the revenuers — charging HST on the entire sale proceeds when a B&B property changes hands. Seriously. Imagine finding a buyer for the $1.7 million pile in NOTL that you filled with Airbnb clients for a couple of years, then getting a bill for 13 per cent. Yes, $221,000. Pay now, please.
This misery flows out of a federal tax court decision a few months ago between a guy who owned a condo in Ottawa (through a numbered company) and His Majesty the King (never mess with a royal).
It’s pretty simple. The condo was an investment property leased out to long-term tenants for nine years. Then the owner flipped over to Airbnb for two years prior to selling it for less than $600,000. Soon came an HST tab for $77,079. He appealed. He lost.
The judge ruled short-term rentals are a commercial activity (like a hotel), not residential in nature. The exemption from federal and provincial sales, he pointed out in the law, “does not include a building, or that part of a building, that is a hotel, a motel, an inn, a boarding house, a lodging house or other similar premises … and all or substantially all of the leases, licences or similar arrangements … are for periods of less than sixty days.”
In short, people who buy houses to go Airbnb are changing the usage from residential (leases) to commercial (tourists). So upon a sale, half the profit is subject to capital gains tax and 100 per cent of the proceeds attract HST. Yikes.
How to avoid it? Get a tenant. And we get a neighbour.
Garth Turner is a NOTL resident, journalist, author, wealth manager and former federal MP and minister.
